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PROJECT TOPIC: THE IMPACT OF CAPITAL BUDGETING ON THE PERFORMANCE OF GOVERNMENT CORPORATION (A CASE STUDY OF NNPC PORT HARCOURT, RIVERS STATE)

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CHAPTER ONE

INTRODUCTION

  1. BACKGROUND OF THE STUDY

The federal government of Nigeria (FGN) since her independence in 1960 has adopted as many as six different fiscal budgeting models. These budget systems include; Line – Item budgeting system, Incremental Budgeting Programming, Performance-Based Budget System (PPBS), Zero-Based Budgeting System, Rolling Plan Budgeting System and the Performance Based budgeting System Central Bank of Nigeria (CBN), (2010). One of the most serious dangers in capital budgeting in the public sector is the potential loss of accountability. The reason accountability is lost is that the existence of two separate accounts one for current expenditures and one for capital obscures the critical `bottom line’ for the public on which overall affordability is judged. Notwithstanding the seeming virtues of capital budgets, opinions continue to be divided, as they have been during the past seven decades, about their utility in governments. In the present context, in which some more advanced countries have budgetary surpluses and use them to reduce levels of public debt, there is little incentive to revive the debate about the need for capital budgets. In the developing world, however, where many governments operate on the edge of financial instability, the debate about capital budgets and their equivalents continues. A key challenge in government budgeting is to define an appropriate balance between current and capital expenditures. Budgeting for government investment also remains not well integrated into the formal budget preparation process in many countries. Experience shows that in the absence of properly organized capital budgets, governments resort to borrowing without due consideration of the sustainability aspects, assets are inadequately maintained, and major projects suffer from overall poor management and performance. The current public budgeting regime – the Performance-based Budgeting (PBS) is intertwined with the Medium Term Expenditure Framework (METF). In recent times, the Federal Government embarked on various reforms and modernization programs to strengthen the budget institutions and capacity of its budgeting and public financial management systems. Nevertheless, the country is yet to catch-up with the latest developments and current best practices in public budgeting, financial planning and fiscal management. These defects and relative lack of efficiency in budget practices affects or impact negatively on the quality of the Nigerian public financial management, and also public services in the economy. Public analysts and commentators on Nigeria’s fiscal matters have contended that the Nigerian governments at all levels have not yet institutionalized suitable performance management control mechanism to facilitate effective measurement of budget / financial performance in the federal public service. The omission of budget performance reporting, which is a vital aspect of budgetary and organizational controls in Nigeria have constituted the main reason for inherent inefficiencies and not-too reliable financial accountability in the Nigerian public sector. A formal minister, Dr Okonjo-Iweala corroborated this fact, stating that the FGN budget was not good enough for development. Several media reports have consistently alerted the public concerning missing public funds in Nigeria such as that of the Nigerian National Petroleum Corporation (NNPC) short remittances crude oil export sales. Most of these adverse reports have led to the commissioning of special audit and forensic investigations such as the investigation carried out by PWC [2015].


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